The minimum possible. If you recognize that banks are part of the problem, you don't want to finance them... Unfortunately, they've had laws passed to make having a bank account mandatory for some important operations, so you cannot avoid them entirely, but that's not a reason to give them all your money.
..but that's not a reason to give them all your money.
I'm curious as to how many people actually keep 90% or more of their total liquid short-term assets in a bank. It seems like a basic rule of diversification of never keeping all your eggs in one basket, including the the bank.
Depends on how you handle your finances and carry risk. If you keep 100% of your short-term assets in a bank and it goes under, under Canadian banking rules (where I'm from), only $100,000 is covered by the government. Same goes with investing all your money into a specific stock, if the stock performs poorly, your net worth takes a hit.
Agreed - so that begs the question: where does somebody who is making 500k or even a million per year keep their money to 1) have it easily accessible for purchasing things and 2) safe?
FDIC insurance is generally on a per-bank basis. You could have multiple accounts across banks each up to $250k.
Generally though there's things like Brokerage Accounts etc which offer higher levels of insurance (SIPC) and easy mechanisms to spread monies across several banks and account services (CDARS for CDs and MMAX for money market accounts).
At that point hopefully you have someone managing your money wisely to help navigate these kinds of things.
Like for when you sever a finger in a kitchen accident and the surgeon won't agree to re-attach within the 6-hour window of feasibility unless you pay him up front in cash. (Really happened).
If you would like to increase the interest received on your money, then holding a portfolio of value stocks or an index ETF will outperform your bank account by a large margin over time. This takes very little effort, but will suffer from the occasional (large) drawdown that you have to sit out or this strategy won't work.
If your primary objective is capital conservation then buying high quality debt of countries would be a good idea. Singapore or Switzerland are good candidates if you consider it a real possibility that the US could default on its obligations. Otherwise you could hold Treasury bills and roll them over once they mature or you could use an ETF like SHY that holds short-term Treasury bonds.
You could also buy precious metals if you are convinced that civilisation is going to end in the foreseeable future. Drawbacks are fluctuating prices and the complete lack of interest payments.
Weren't we talking about liquid assets? I don't count ETF's as liquid. Even if you can buy/sell them freely, have you ever actually tried to take money out of a brokerage? "Liquid" is the last word I would use.
Living in Canada and under CDIC rules, only $100,000 is covered. Thus, backing up my original post of not putting all your fiat eggs in your bank basket.
I suppose that's something to worry about, but only for the tiny portion of people for whom more than $100,000 is a reasonable amount of "liquid short-term assets". I don't expect to ever hold more than an emergency fund + float in cash, so that's not an amount I expect to ever exceed.
I would put that pretty low on my list of worries, if your money is in USD or a similarly stable currency, rather than a small one like Zimbabwean dollars or Icelandic Krona. Modest inflation, perhaps even in the low double digits, is a non-negligible risk, but Weimar-style hyperinflation in USD is a fairly negligible risk, much lower than a bunch of other risks I'm exposed to. The last time the annual inflation rate in USD surpassed 100% (which still isn't even hyperinflation territory) was during the Civil War, ~150 years ago.
It seems like a basic rule of diversification of never keeping all your eggs in one basket, including the the bank.
I'm unclear if you're asking how many people keep 90% or more of their total liquid short-term assets in a bank or not.
I'd expect most people keep most their short-term liquid assets in a bank since this is usually just their cash on hand. But this is not "all their eggs" considering their long-term non-liquid assets are probably tied up in some sort of retirement vehicles (which are hopefully diversified), and their homes.
I agree with you philosophically but wonder about the practical side of things. Having nearly all my money available through my Visa debit card means that I can make purchases widely and easily. If I didn't keep the money there then I'd have to make transfers/deposits before making purchases. I won't use PayPal as they are also in my "evil" category. So how do you negotiate day to day purchases without hassle?
You can always use a credit card as a buffer, and transfer/deposit every 30 days. Or even skip the bank entirely and pay the credit card bill directly through the mail like the ol' days.
Surely there are better ways to fix the problem by means other than boycotting financial services.
Also, if your sentiments were generalised across the population it wouldn't just be the banks suffering. We'd have a massive credit crunch. Regular, honest people wouldn't be unable to get mortgages or business loans.
I have to pay self employment tax since I'm a graduate fellow, so I have a larger amount in my bank account than I own. My vote reflects the money I own.
Mine is liquid at the moment because I will be buying a house this year. I'd rather not lock it in to anything that makes it difficult to retrieve. This includes an RRSP mind you. That's liquid for house buying in Canada.
When we were renovating our house, we kept about an order of magnitude more liquid than usual. Writing checks for $O(15k) on a weekly basis will cause you to do that.
Well one of the interesting things could be house buying. A number of people during the dot com meltdown were buying houses and waiting to exercise their options at the last minute because they wanted the price to be as high as possible. Except that when it came time to buy their stock value had plummeted. Forcing them to either sell more than they intended, or abandon the house purchase, or restructure the purchase.
People with that experience might sell their assets, hold the money in their account until everything has settled, and then move forward.
Also folks who sell stock options often have big tax bills to pay. But rather than slosh that money into and out of something that pays .5% interest they are just leaving it in their account until sending it to the IRS on 4/15.
The bottom line is it is that the answers look different from two sides of the bank balance :-)
I don't think I have ever left that much money in my account for any length of time, but I do recall the CEO of a company I helped get started put the $1.5M series A check into their account while waiting to transfer it over to the newly established corporate accounts. He joked the bank staff treated him very well after that :-).
yep. It took a couple months to assemble the funds for the down payment on my house. You also need to figure in that a lot of lenders will look unfavorably on you if the down payment money was just recently deposited into your account. They'll want to know where it came from. So it would not be unheard of for a person to have $150K in their checking for a few months as they house shop and seek a loan.
And while mine wasn't anywhere near $1.5M, I did notice a slight glimmer in the eye of the teller that brought up my account balance. Before we could even begin the transaction I came in to do, she asked me if I'd thought about switching to a different account type because of that balance. I had to cut her off and tell her that today's transaction would be a large cashiers check because I had just bought a house. :)
I tend to be more liberal in my politics, but I don't think people making "too much money" are a problem. That sounds like envy, to be honest.
The problem in America represented by this poll aren't the ~40 people who upvoted >$150k but that the sheer majority have <$3000, like me. That is the problem, that sheer majority[1] of us have to live paycheck-to-paycheck and should a catastrophe happen, we'd be bankrupt.
Is this really meant for just bank accounts (ie. checking+savings)? If so, I don't understand how anyone is answering more than $10,000. Nearly all your assets should be invested, with just enough cash to handle immediate expenses.
Your emergency funds don't need to be cash in low interest savings/checking.
For example, home-equity line of credit is great for just sitting there most of the time unless you really need it. That frees up capital that you'd otherwise tie up in liquid cash that doesn't do anything.
Sure. But there's absolutely no reason your entire emergency fund has to be in cash. Sure, keep the first month or two in cash but anything beyond that could easily be kept in an investment and liquidated when necessary.
There are many immediate expenses that significantly exceed $10k if you're wealthy. Also, "should" is a personal preference / strategy and certainly does not apply to everyone.
What is this "investment" you speak of? I'm 29 and the only asset I have is a very meager amount of cash (after taking debt into account) and the car I finally just paid off, which is worth about %10 of its original value.
Obviously it various depending on our paycheck cycles and when the larger monthly bills get paid. But I have to keep a little bit extra in reserve because the mortgage on my rental house is due before I get that month's rent from the tenant.
I assume by 'in your bank account' you mean liquid? It really doesn't make sense to have more than the money you use between deposit periods (plus a reasonable cushion) in a checking account. I keep $1,000 in my savings so it's not empty, but I never use the account.
I keep 200% of my average spend between deposit periods in checking and move the rest to a 'holding' account that's a money market account (higher interest). If I need to contribute to my IRA, pay real estate taxes, make a large purchase, etc. I pull from here. I'll also use this money to make some investments that I consider liquid (i.e. have Apple now, just sold Tesla).
There's more to it, but this system works well for me. I had an issue when I first got married because my wife is a bit more of a...liberal spender than I am. I have it set to always payoff my credit card statement balance every month and was surprised a couple of times how somebody could reasonably spend that much in a short period of time. But then again, this is coming from a guy that drives a Honda Civic, spends a few hundred a month in food, exclusively wears ~$17 jeans, and loves $3.77 Costco lunches that include a slice of pizza, hot dog and a drink (awesome, right?).
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[ 3.3 ms ] story [ 119 ms ] threadI'm curious as to how many people actually keep 90% or more of their total liquid short-term assets in a bank. It seems like a basic rule of diversification of never keeping all your eggs in one basket, including the the bank.
Generally though there's things like Brokerage Accounts etc which offer higher levels of insurance (SIPC) and easy mechanisms to spread monies across several banks and account services (CDARS for CDs and MMAX for money market accounts).
At that point hopefully you have someone managing your money wisely to help navigate these kinds of things.
'Safe' stocks (utilities, etc), precious metals and real estate are all nominally safe investments as well.
If you would like to increase the interest received on your money, then holding a portfolio of value stocks or an index ETF will outperform your bank account by a large margin over time. This takes very little effort, but will suffer from the occasional (large) drawdown that you have to sit out or this strategy won't work.
If your primary objective is capital conservation then buying high quality debt of countries would be a good idea. Singapore or Switzerland are good candidates if you consider it a real possibility that the US could default on its obligations. Otherwise you could hold Treasury bills and roll them over once they mature or you could use an ETF like SHY that holds short-term Treasury bonds.
You could also buy precious metals if you are convinced that civilisation is going to end in the foreseeable future. Drawbacks are fluctuating prices and the complete lack of interest payments.
I'm unclear if you're asking how many people keep 90% or more of their total liquid short-term assets in a bank or not.
I'd expect most people keep most their short-term liquid assets in a bank since this is usually just their cash on hand. But this is not "all their eggs" considering their long-term non-liquid assets are probably tied up in some sort of retirement vehicles (which are hopefully diversified), and their homes.
Have fun retiring without 401K/IRA.
Also, if your sentiments were generalised across the population it wouldn't just be the banks suffering. We'd have a massive credit crunch. Regular, honest people wouldn't be unable to get mortgages or business loans.
I would post it myself, but I need 81 upvotes to this post to get me there.
I gave my one. :-)
People with that experience might sell their assets, hold the money in their account until everything has settled, and then move forward.
Also folks who sell stock options often have big tax bills to pay. But rather than slosh that money into and out of something that pays .5% interest they are just leaving it in their account until sending it to the IRS on 4/15.
The bottom line is it is that the answers look different from two sides of the bank balance :-)
I don't think I have ever left that much money in my account for any length of time, but I do recall the CEO of a company I helped get started put the $1.5M series A check into their account while waiting to transfer it over to the newly established corporate accounts. He joked the bank staff treated him very well after that :-).
And while mine wasn't anywhere near $1.5M, I did notice a slight glimmer in the eye of the teller that brought up my account balance. Before we could even begin the transaction I came in to do, she asked me if I'd thought about switching to a different account type because of that balance. I had to cut her off and tell her that today's transaction would be a large cashiers check because I had just bought a house. :)
ps. I'm old.
You can always buy another one you rich motherfucker.
The problem in America represented by this poll aren't the ~40 people who upvoted >$150k but that the sheer majority have <$3000, like me. That is the problem, that sheer majority[1] of us have to live paycheck-to-paycheck and should a catastrophe happen, we'd be bankrupt.
[1] http://money.cnn.com/2013/06/24/pf/emergency-savings/index.h...
For example, home-equity line of credit is great for just sitting there most of the time unless you really need it. That frees up capital that you'd otherwise tie up in liquid cash that doesn't do anything.
('pulling my hair out' frequently)
I usually just say that I'm frugal, but one has to be when all that comes in, goes out.
Today: Checking: ~$2400 Savings: ~$250 (I'm just getting started and paying off major student loans ~$120,000 to go...)
Tomorrow: Checking: $5200 Savings: $325
I keep 200% of my average spend between deposit periods in checking and move the rest to a 'holding' account that's a money market account (higher interest). If I need to contribute to my IRA, pay real estate taxes, make a large purchase, etc. I pull from here. I'll also use this money to make some investments that I consider liquid (i.e. have Apple now, just sold Tesla).
There's more to it, but this system works well for me. I had an issue when I first got married because my wife is a bit more of a...liberal spender than I am. I have it set to always payoff my credit card statement balance every month and was surprised a couple of times how somebody could reasonably spend that much in a short period of time. But then again, this is coming from a guy that drives a Honda Civic, spends a few hundred a month in food, exclusively wears ~$17 jeans, and loves $3.77 Costco lunches that include a slice of pizza, hot dog and a drink (awesome, right?).